Category: Education

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Financial lessons for parents of students

If you’ve got a son or daughter at college or university, you could have some stark financial lessons ahead. Getting the grades may have dominated the household up to now but budgeting for their life as a student can require just as much focus.      

Tuition fees and student loans are usually top of the agenda. Most universities charge £9,250 for tuition fees but the financial help available to students for their living costs will differ. Maintenance loans are calculated according to where the student is going to study, where they plan to live and how much their parents earn.

As an example, the maximum maintenance loan is £11,672 if the student is an undergraduate,  studying in London and not living at home, but this would only apply if the gross household income was below £25,000 (after pension contributions). If the household income is greater than £67,000, the maximum a student can borrow for their living costs is £5,812. You would be expected to provide a parental contribution of £6,000 to make up the shortfall.              

A recent survey revealed that parents of students could be found to be contributing an average of £360 a month. Half of them said they had not anticipated that they would have to give as much financial help. Luxury items such as new cars and exotic holidays were sacrificed while six per cent of respondents said they had taken a second job.

Despite this, students faced an average monthly shortfall of £267, according to the 2019  National Student Money Survey. Although some had taken part time jobs, 49 per cent relied on  overdrafts and 14 per cent on credit cards.

Not surprisingly, the main expense is accommodation.This has soared in recent years due to the increasing amount of university accommodation being provided by commercial operators, which costs significantly more than traditional halls of residence. Students can find themselves paying up to £9,000 a year on rent in London and £6,366 elsewhere.

Students also get tied into lengthy commercial tenancies of up to 46 weeks. Some landlords may even charge for 51 weeks. To make things even more difficult, the rent may be due before the maintenance loan arrives.         

Despite the high costs, demand is high so students may be expected to start a tenancy in June for the forthcoming academic year. That can mean deposits of three months’ rent need to be paid in advance before the Easter term.

Parents are often called in to meet these costs and act as a rental guarantor. One advantage is that large providers like the Unite Group will allow you to pay by credit card so you can stack up lots of loyalty points. 

It’s an exciting new chapter of life and with a bit of careful ongoing planning and budgeting, you can make sure you minimise any surprises. 

Financial Planning Week – Take action, don’t wait for tomorrow !

As the saying goes – ‘tomorrow never arrives’ so take the opportunity to do something this week – for Financial Planning Week, using our top tips – Technically, the United Kingdom is now out of recession. But every family will tell you that times remain tough. Even at the top end of the pay scale, the ending of child allowance early in 2013 will mean that a lot of people have far less disposable income.

With no sign of the economic good times returning in the foreseeable future, saving money is going be more important than ever in 2013 – both saving money now, and long-term savings for the future.

We’ve put together ten financial planning tips to help you do that.

1. Make use of your tax free allowances. Everyone over the age of 16 has an allowance for an ISA (Individual Savings Account). For the tax year 2012/2013 this is £11,280 of which £5,640 can be saved in a cash ISA (with those aged 16-17 only being eligible for a cash ISA). If you have money in the building society it makes sense to use your ISA allowance every year as there’ll be no tax deducted from your interest. Remember though, that the limit for this tax year only runs until 5th April 2013. After that a new tax year starts, and if you haven’t used your 2012/2013 allowance then it is lost.

2. Don’t neglect your other allowances as well. Everyone has a Capital Gains Tax annual exemption (£10,600 for the current tax year) but accountants will tell you that it is not used to shelter gains as often as it should be.

3. Although pensions have slightly fallen out of favour in recent years they remain a very tax efficient way of saving for your retirement, as you receive tax relief on the contributions you make. Many people are unsure of their pension benefits and/or the current value of their pension savings. Having a thorough review of your pension planning should be a priority for many people.

4. Check on your mortgage and life cover. Making sure that you have the most competitive rate on your mortgage and that you’re not paying too much for your life cover and other protection policies, or having cover when you don’t need it – this can be an excellent way to make some short term savings in your monthly expenditure, but don’t cancel policies just to save money, this could be a serious and costly mistake.

5. As well as making sure that you’re using your ISA allowances, you should also check on the rates you are receiving on your savings. Even though interest rates are generally low there is a still a big difference between the best and worst accounts. This is an area where a little shopping around or research online can pay big dividends.

6. Many children will be going on to further education, and with the new student loans scheme now in operation it makes sense to start saving as early as possible for the cost of university or college. With fees of up to £9,000 plus the cost of accommodation, many students are going to finish a three year course with debts approaching £50,000. With interest payable on this debt, many parents will feel that they don’t want their son or daughter to start working life with such a burden of debt, and will want to try and offset it in some way. The earlier you start saving the better.

7. Get rid of high cost debt. If you have debt – whether it is on credit cards or loans – then it makes sense to try and pay off the debt with the highest interest rate first. There are some attractive deals available on switching your credit card and taking action in this area can lead to significant monthly savings.

8. Although this isn’t an area we advise on, many of our clients have made considerable savings by checking how much they’re paying for gas and electricity. In some cases switching to a new provider can mean sizeable monthly savings, especially with costs of lighting, heating and power continuing to increase.

9. Clean up your credit file. It costs very little to obtain a copy of your credit file from Experian, and making sure that it’s an accurate reflection of your credit history is something well worth doing. Improving your credit rating could well mean that your future cost of credit is reduced, leading to long term savings.

10. Lastly, a piece of psychological advice! You’re almost certain to be more successful with saving if you’re saving for a definite purpose. Set money aside for your ‘holiday in Barbados’ or to ‘change the car.’ Apparently money that’s vaguely there ‘for a rainy day’ is all too readily accessed…

The economic climate is going to remain difficult, so saving money in the short term and building up your savings for the future are going to be more important than ever.  Plan for the future don’t leave it to the game of chance ! 

As always, if you’d like any advice on your savings or you’d like to discuss specific savings objectives, then please don’t hesitate to contact us on 01737 225665 or advice@conceptfp.com

Getting your Financial Planning ready for University

The A-level results came out on August 16th and thousands of teenagers up and down the country are now looking forward to starting university in September. Their parents, however, might be gloomily looking at their bank accounts and taking a rather different view.

With fees of up to £9,000 and accommodation costs of say, £5,000 per year, a student starting at university this September is going to graduate with a debt approaching £50,000. Many parents understandably want to help their children avoid this. However, evidence from the USA – where student loans have long existed – suggest that as the economy wobbles, many families are facing an excessive strain as they try and minimise the amount of debt that will now come with a degree.

Fortunately, there are some simple financial planning steps that you can take to guarantee that the good news of the A-level results isn’t swiftly followed by depressing financial news.

Typically, a child starting at university will mean two demands for money – immediate, and longer term.

In the short term there’ll be things you need to buy your son or daughter before they leave home – what teenager doesn’t need a new laptop? However, the university may also ask for money by way of a deposit against accommodation costs or – depending on where your child is going – a college bill for food.

If these costs can’t be met from income then they are ideally met by long term saving. Putting away just a small amount each month when your child starts secondary school should mean that there is a reasonable nest-egg ready for when they start university.

A regular contribution to your child’s ongoing university costs over a three or four year course requires more serious planning – and again, the US provides a salutary lesson. In the past, many families paid for their children’s college costs by using the equity in their homes. Unfortunately, the economic slowdown and subsequent fall in house prices has now left many families who did this without any equity in their properties.

Doubtless some people in the UK will fall into the same trap – but there’s no need to, as some basic financial planning should enable you to help your son or daughter through university, without breaking the family budget. Long term savings are the key, and we’ll be happy to advise you on the most cost effective way of doing this. The same principles will apply to university costs as to any long term financial planning goals: make sensible plans and review them regularly – and make sure your savings are invested as tax-efficiently as possible.

We’ve worked with hundreds of clients to help them do this: if you’d like to speak to us, simply pick up the phone or drop us an e-mail.

One last point: fortunately, it’s not all down to the parents! Here are three financial planning steps your children can take before they bid you a tearful farewell and plunge into Freshers’ Week:

Sort out the best student bank account – while your son or daughter may have had a bank account for some years, it may not be the best one now they’re going to university. There’s keen competition between the banks and some shopping around on the internet may well pay dividends.

Learn how to handle money and do some basic budgeting. Stories of students blowing their loan or grant in the first week of term and living on chips for nine weeks are legion. Make sure your child isn’t one of them.

And the third recommendation? Work. Student holidays are long and money earned in the summer is money that doesn’t have to be borrowed – or provided by parents.